English version of an article in the national daily newspaper ‘Unuudur’ dated 5 February 2018  

The American lesson & present regulations        

The seemingly unlimited supply of grazing lands coupled with its unrestricted free use, fueled massive interests to increase the herd size in the U.S in the late 1800s.  In fact, the number of cattle grew from 4.1 million to 19.6 million and the number of sheep grew 4-5 times from 4.8 million to 25.1 million from 1870-1900. Although late, Americans have realized the consequences of human greed and ignorance towards environmental degradation.

In the early 1900s, pasture degradation & desertification in the west caused the worst dust storms in U.S. history to reach Washington DC in the east and the Great Depression and droughts have triggered policymakers to make a bold political decision to tackle the problem. The unregulated & free use of public grazing lands ended with the passage of the Taylor Grazing Act in 1934 which was updated several times later on. It has introduced key regulations to stop public land degradation, ensure its proper use and support the sustainable development of the livestock industry. They introduced the identification of land use boundaries, limits on stocking densities and rotational use and resting periods. A grazing fee system was introduced to finance the enforcement and monitoring of the regulations. The Bureau of Land Management under the Department of Interior is a key body regulating the use of public grazing lands. Under  the mission “Sustain the health, diversity, and productivity of America’s public lands for the multiple use and enjoyment of present and future generations”, it manages the use of 65 million hectares of federal land, out of the total 99 million hectares, for livestock grazing largely in the fall, spring and summer in 12 western states. In addition, the Forest Service of the Department of Agriculture manages the use of 38.5 million hectares of public land in high altitudes in 29 states during the summer & fall. Extendable grazing contracts called ‘grazing permits’ are issued for 10 years and short-term contracts of up to 1 year are also issued. Grazing fees are determined by the animal unit month (AUM) as an estimate of 1 adult cattle weighting 450 kg and consuming 270 kg of pasture forage in dry matter per month. It equates to 1 horse and 5 sheep or 5 goats.  The 2016 fee for AUM was $2.11. In sheep unit terms, it becomes $0.42 (2.11:5) or $5 (0.42 x 12) ₮12200 per year.  The current grazing fee is based on a 1966 survey and it was regulated that the fee level should not be lower than $1.35 and the annual fee changes should not exceed 25% from the previous year. The grazing fee is adjusted annually based on underlying variables like meat and feed price. The fee is collected by local offices of the Bureau of Land Management & Forest Service to finance mostly the rangeland management, protection and improvement of public lands.

The present situation in Mongolia

In 2017, Mongolia has counted 66.2 million livestock achieving a historic record. Guided by traditional wisdoms ‘land will bloom’ and ‘graze wherever space for camping and animal’s snout is accommodated,’ herders, people with livestock, wrestlers, shamans… rushed to increase the herd size in order to profit from animal numbers. As a result, the pastureland has been severely overgrazed and degraded echoing the American tragedy 100 years ago. According to evaluations conducted by the government professional institutions in 2014, out of the total 110 million hectares of grazing land, approximately 65% were degraded and 7% – an area equal to an entire aimag -were degraded beyond recovery. The answer to the question whether herders and the livestock sector have won from much increased herd size is unfortunately ‘No’.  In order to be fed full, one sheep unit needs 560 kg of pasture forage in dry matter. The national pastureland grass yield per hectare averaged 240 kg in 2010-2014. It is noteworthy that pasture carrying capacity is determined as an average of several years or as a yield in unfavorable years rather than that of favorable years. So, these estimates suggest that optimum stocking density to keep one sheep unit fully fed is 2.3 hectares of pasture (560:240).  The currently available pasture of 110 m2 ha can sustain 48 million sheep units (110:2.3). The present 66.2 m livestock equals to 110 million sheep units or 1 ha per 1 sheep unit meaning the pasture carrying capacity is exceeded by 2.3 times. This means that animals consume only 43.4% of the required feed (1:2.3) and malnutrition rate is 56.6% (100%-43.4%). One needs to keep in mind that due to agro-ecological conditions Mongolia is not competitive in growing cheap feed domestically. As a result pastures account for 97% of the animal feed balance and most prepared feed is made of natural hay cut from pastures with higher yield. As experienced herders  say ‘fat animals are beneficial in multiple senses’, the veterinary and breeding sciences teach that full feeding is essential for animal health and productivity growth.   When this key condition is lost, animals lose body weight, produce less output and become vulnerable to diseases and natural risks. As a result, livestock and their product value are declining due to the inability to reach better markets, especially export markets. If the quality standards were enforced, much of the meat consumed domestically would be banned for sale for numerous reasons such as underweight conditions, poor hygiene, drug residuals etc. In 1961, the average live weight of cattle and milk yield declined from 248 kg and 344 liters in 1961 to 245 kg and 323 liters in 1991 respectively. Since 1991, Mongolia has stopped even measuring these kinds of animal productivity indicators, as they have been removed from the national statistics. In a study conducted by scientists in 2005, pasture degradation has caused the live weight of sheep and goats to drop from 48 kg to 44 kg and 35 kg to 33 kg, respectively and wool & cashmere yield decreased by 2%-8%. Estimates based on these figures alone suggest that productivity declines cost MNT 2.6 m annual income loss per herder household amounting to MNT 368 billion nationwide.

Thus, the key question is how to free herders from a vicious circle in which they strive hard to maximize animal numbers after a dzud but end up with no good returns as their strategy destroys pastures, decreases productivity and swallows up otor reserve pastures making losses for the next dzud even more devastating?

Why do herders maximize animal numbers, are they guilty?

Competing to maximize own benefits, given the existing incentive structures, is dictated by a market economy.

The existing incentive mechanisms imposed on herders are:

  • Herders use pastures and the resources on them, such as water and salt licks, free of any charge and without any accountability mechanisms for overgrazing and degradation.
  • Absence of any incentive mechanisms towards maintaining optimum stocking density
  • Absence of any incentives stimulating livestock and product quality (Example: cashmere and meat price are based on purely quantity-kg)
  • Quality and other standards are not enforced largely due to difficulties of controlling animal sales which are currently undertaken largely at herders’ camp sites

Thus, the current incentives dictate that herders rationally choose maximizing animal numbers as the cheapest and easiest way of income generation and it is not herders’ fault.

Securing herders’ grazing rights through registration and protection and grazing fees are 2 key tools for ensuring the sustainable use of pasture. Securing herders’ grazing rights involves identification of pastureland use boundaries and introduction of land use agreements to enforce optimum stocking densities and to leverage herders into using pastures in a sustainable way and adopting productivity oriented strategies.  Under the current common-use regime nobody is interested in improving & protecting pastureland as they cannot reap the benefits of their efforts and investments. The grazing fee, on the other hand, is a way to internalize costs and damages to state-owned pastureland into herders’ interests, which are currently ‘external’ costs to herders  and therefore do not attract their attention no matter how  costly it may be. These key incentive mechanisms are absent in the present common-use regime. Therefore, herders cannot be blamed for maximizing animal numbers; instead the government needs to put in place incentive mechanisms to guide herders’ behavior in the right direction.

Economic interests can only be changed through economic incentives

There is no way to change herders’ behavior other than through economic incentives that deal with their interests of increasing income and wealth. Under the UNDP funded “BIOFIN” project, the Center for Policy Research (CPR) has developed a methodology to estimate grazing fees, collect and spend revenues in a way compatible with herders’ interests to pursue income and wealth. The following principles were applied in estimating fees:

  • Grazing fees are differentiated across pastureland users based on pasture quality, location, animal type and the degree of overstocking.
  • Revenues are used back locally on financing pastureland, livestock risk and environmental protection
  • Fees are designed in such a way that does not cause any financial burden on herders, especially the poor and takes into account the soum budget needs to finance pastureland, livestock risk and environmental management as stipulated by the Budget Law article 58.4.

The annual base grazing fee per sheep unit is estimated to be MNT 500, out of which MNT 135 goes to the soum disposal fund to finance soum-level pastureland, livestock risk and environmental management activities. The remaining MNT 365 shall be used to establish the soum Livestock Risk Management Fund (LRMF) as a part of the soum local development fund. LRMF shall be spent on financing herder’s groups’ proposals on pasture management, livestock risks & environmental protection activities. An additional fee of MNT 300 accrued due to overstocking on top of the base MNT 500 shall also be transferred to the local development fund to establish the Livestock Quality Stimulation Fund (LQSF). LQSF shall be used as an incentive mechanism and financial source to organize animal procurement in an organized way under adequate quality control. Herders bring animals for meat to the soum procurement point to get a quality premium for each livestock that meets quality requirements and certified by the relevant soum officials and private vets. The premiums shall be differentiated based on the quality of animals and certified animals shall be sold to processors/abattoirs by a marketing cooperative to fetch better prices for increased quality and volumes. Grazing fee paid in the amount of around MNT 300 per sheep unit grows 8 folds into MNT 2500 per sheep unit as only around 13% of animals are sold to meat annually (100:13=8). In this way, the key weaknesses of the existing meat value chain – a lack of organization among herders leading to no linkage of herders to processors and ‘changers’ dominating the market and accruing the biggest portion of margins and animals being sold from herders’ camp sites often hand-slaughtered leading to low prices and failures to meet hygiene requirements and export market demands- can be well overcome. Livestock passing the quality certification shall be ear-tagged (the past efforts to ear-tag all animals were too costly and impractical). This will not only benefit herders and local marketing cooperatives, but also improve food safety for domestic consumers as well as improving access to export markets. Table below demonstrates fee revenues and expenditures.

Indicators by ecological regions High mountain Forest steppe Steppe Gobi Great Lakes Depression
Gross household income ’000 MNT 14163 16581 18664 14327 16392
Estimates per sheep unit, MNT
Income per sheep unit 22835 22764 19327 17830 19211
Grazing fee 845 828 764 802 838
Soum disposal fund 135 135 135 135 135
LRMF 365 365 365 365 365
LQSF 345 328 264 302 338
Average soum estimate, m MNT
Fee revenue 323 305 334 283 289
Revenue expenditure
Soum disposal fund 52 50 59 48 47
Herders benefit from LRMF 140 134 159 129 126
Herders benefit from LQSF 131 121 116 106 116
Average herder household estimate, ‘ 000 MNT
Grazing fee paid 524 603 739 644 716
Benefits  received from funds 440 505 607 536 600

The annual livestock income including home-consumed meat and livestock growth accounts for MNT 14.2-18.7 million per average herder household, while income per sheep unit is MNT 17.8-22.8 thousand. The fee per sheep unit is MNT 800 accounting for only 4% of the income per sheep unit. Since herders receive back more than 80% of the fee paid through the funds, it does not cause any financial burden on them. On the contrary, this rather helps herders by safeguarding necessary funding for managing pastureland and livestock risks. MNT 135 per sheep unit that remains at the soum disposal is less than the income tax herders paid until 2009 as the tax amount of MNT 100 paid per sheep unit has a present value of MNT 190, 40% higher than the MNT 135.

In order to benefit from LRMF and LQSF, herders need to meet the following conditions:

  • If herders signed the pastureland use agreement, they will benefit from the LRMF proportionately to the degree of fulfilling the duties of reconciling animal numbers with the pasture carrying capacity and LQSF
  • If herders did not sign pastureland use agreement yet, they will benefit only from the LQSF. However, they still need to form a herder group, identify pastureland use boundaries and have a plan to reconcile animal numbers with the pasture carrying capacity approved by a meeting of group members.

As many may question whether decreasing the herd size may cause their income to fall, CPR conducted income projections using a herd turn-over model. The findings revealed that if the current trend of increasing the herd size around 10% per annum holds, the average herder household income will be MNT 10.5 million after 5 years. On the other hand, by decreasing the herd size around 6-8% per annum, a move towards the optimum stocking density by selling off more animals in the market, the average herder household income will be MNT 13.6 million or 30% higher after 5 years. The model has been promoted among herders under the name of ‘Smart Herder’ program and has reached some tangible results. In 2017, CPR assisted 2 herders groups in the Munkhkhairkhan soum of the Khovd aimag under the WWF’s ‘Environmentally Friendly Pastureland Management’ project to pilot the program. As evidenced by the 2017 animal census, 2 herder groups have decreased the herd size by 168 sheep units, while the soum has increased the herd size by 7%.

The grazing fee brings the following benefits:

  1. Introduce a strong economic incentive for herders to grasp the consequences of increasing the herd size and benefits of increasing income through improved productivity and off-take rates. As a result the livestock sector will be put in a sustainable path of development, improving its competitiveness, export income and food safety.
  2. Reduce the dependence of local development finds on mining incomes and establish a sustainable local funding source for pasture management, livestock risk & environmental protection. Local development fund revenues at the soum level have decreased 2-3 folds compared to the period of mining booms in 2011-2012.
  3. Replace the existing ineffective system of risk and disaster management, where herders ask for assistance from the government and the latter seeks the help of international donors and aid funds are used in an inefficient and rushed way with an advance planned and adequately funded system.
  4. Implement pastureland and livestock related targets in the Mongol Livestock National Program, the Food & Agricultural Policy and the Government Action Plan for 2016-2020

The grazing fees raise a total of MNT 102 billion annually nationwide which will provide essential budget support. The grazing fee is not a tax but a type of production cost. It is designed to redistribute herders’ income to ensure local governments and herders have funds for managing pastureland and stay better prepared for managing risks. Without such a mechanism, both local governments and herders tend to insufficiently prepare for risks and pay high costs during natural disasters. In this context, the “Livestock Risk Management Fund” can be called “Herder Support Fund”, “Livestock Sustainable Development Fund” and “Pasture Protection Fund”. The proposal has been consulted with herder representatives, aimag & soum governments and relevant divisions of the Ministry of Food, Agriculture and Light Industry, the Ministry of Finance and the Ministry of Environment and Tourism Development. The proposal received strong support but was reminded that the implementation ultimately depends on decisive political action. Using the methodology, the average fee for 5 ecological regions and 330 soums, have been estimated and the methodology is able estimate grazing fees for each khot ail– smallest pastureland management unit and herder group.

The legal means of introducing the grazing fee is clear -the article 8.1.1 of the Land Payment Law, making herders exempt from land use fees, needs to be revoked. Some minor amendments needed for other relevant laws & regulations. In this regard, the leadership of the government, particularly the Ministry of Food, Agriculture and Light Industry, the Ministry of Finance, the Ministry of Environment and Tourism Development, the National Emergency Management Authority and Parliament members are essential. In addition, the consolidated support from the donor community for promoting the policy reform would be very opportune.